On March 3, 2017, the SEC published its complaint against Desarrolladora Homex, once one of Mexico’s leading homebuilders. The complaint alleged that Homex committed “massive fraud” when it reported the construction and sale of 100,000 homes that did not even exist.
The complaint alleges that Homex booked revenue from a development in the Mexican state of Guanajuato where it claimed that homes were built and sold by the end of 2011. However, satellite images taken in March 2012 showed that tens of thousands of those homes were “nothing but bare soil.” According to the SEC, through this fraudulent scheme Homex overstated its revenue by 355% (or approximately $3.3 billion).
Signs of trouble for Homex began as early as 2013 when Homex’s builder and his competitors suffered incredible losses on stocks and bonds. In 2014, Homex filed for the Mexican equivalent of bankruptcy protection and emerged under new leadership in 2015.
The new leadership at Homex proved unable to save the company from its prior financial woes. In April 2016, the SEC issued a Wells notice to Homex and indicated that the SEC had made a preliminary determination that Homex had committed various violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. These violations were in connection with the company’s recognition of revenue related to home sales during 2010 through 2012. Although the company announced its plans to fend off the SEC from formal enforcement proceedings, those efforts proved futile. Months later, Homex was placed on a 20-month trading suspension and the instant enforcement proceedings soon followed.
Homex agreed to settle SEC accounting fraud charges without admitting or denying the allegations. The settlement, filed in the United States District Court in Southern District of California, permanently enjoins Homex from violating the antifraud reporting and books and records provisions of the federal securities laws. In the settlement, Homex also agreed to be prohibited from offering securities in the United States markets for a period of at least five years. This settlement is subject to a judge’s approval.